Round Modeling

Round modeling is a financial tool to help the investors and management of the company view the dilution of the company’s cap table with the introduction of new investments. This round modeling financial analysis also takes into consideration a new option pool upon the new investment.

The results from this financial analysis can help the company make critical decisions on the timing and amount of new investments into the company from outside investors. This is key for any startup looking to grow their company, and helps manage the cap table and the effects of share dilution for the founders and other existing shareholders.

Key Features of Eqvista Round Model

The advantages of the Eqvista Round Modelling are the pairing of an easy-to-understand interface with an array of options for different dilution scenarios. This allows our users to view many different round models to see the effect on their share dilution in their cap table.

Our key features makes the Eqvista round modeling a leading financial tool for startup founders and investors to test different scenarios with multiple functionality. This importance differentiates our round modeling from other platforms with only the basic functions.

We believe our interface allows users to easily view the results of their round modeling, and have the flexibility to change different factors as they like.

The preference shares also have a conversion rate of 2 (worth twice the amount of common shares)

The cap table of Finance Inc. on the Eqvista App is as below:

With all the figures ready, let’s share two different scenarios of the round modeling.

Scenario 1

The first scenario we will set the pre-money valuation at $10,000,000, a post-money option pool of 10%, and a new investment amount of $1,000,000. For the various parameters, we will not include conversion rates, convertible note interest, and calculate the convertible notes on a pre-money convertible basis for simplicity.

The inputs and breakdown of the values are as below:

The pre-money value of the company’s shareholders would resemble that of the cap table, except for the overall value totaling that of $10,000,000, instead of the original share value amounts.

However the post-money values would be different for the current share classes, as they would undergo some share dilution from the introduction of the new investment and new option class.

You can see in the chart below that each equity type is diluted, with their ownership share reduction going to the 10% for the new options, and 9.09% for the new investment of $1,000,000. For instance, the founder class of common shares are diluted by 4.91%, from 20% to 15.09%. This also results in a reduction of their value of the company from $2,000,000 to $1,660,000.

The results of this are shown below:

Scenario 2

In the second scenario, we have increased the new investment amount to $2,000,000, and also included the conversion rate and convertible note interest into the equation (date of investment of 16 August 2020).

The inputs and breakdown of these values are below:

In this scenario, the pre-money values would differ slightly as the amount of ownership of the preference shares would increase due to the inclusion of their conversion rates.

However the post-money basis would look much different. Even though the new investment has doubled to $2,000,000, some of its ownership is taken by the higher number of preference shares and convertible notes due to its 10% annual interest. This would result in the new investment increasing only to 16.67% of the company from 9.09% in the previous scenario, with double the investment. The preference share classes also increased over 1% due to their higher number of shares.

The results of this is shown below:

We have covered some basic round modelling to show you an example of how this works on the Eqvista app. You can test the advanced version with several new investments for a more real-life scenario.

These can show you how round modeling as a financial tool works when viewing the dilution of new investments in your company. This unique financial modeling with improve your overall cap table management. Hopefully these models can help you in the future when you plan the growth of your business!

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